Will Malta Become the New Ireland in International Tax Planning?

U.S. taxpayers have historically looked to Ireland for setting up operations in Europe due to its skilled workforce, infrastructure, and tax benefits. However, with the new U.S.-Malta income tax treaty, Malta has become a more attractive option with its low corporate income tax rate and favorable tax treatment of intellectual property. This article will discuss the U.S. tax planning opportunities with Maltese corporations. In general, U.S. federal income tax treatment of a corporation depends on whether it is domestic or foreign. Domestic corporations are taxed on all their worldwide income, while foreign corporations are only taxed on income from U.S. sources. If a U.S. taxpayer earns money from foreign companies, they only have to pay U.S. federal income tax when they receive the money as a dividend. However, there are some rules that may make them pay tax on certain types of income even if they don’t get the money. If they do have to pay tax, they may be able to use a foreign tax credit to lower the amount they owe. For foreign companies doing business in the U.S., they may have to pay tax on income that is connected to their U.S. business activities. They may also have to pay a 30 percent tax on certain types of income from the U.S., but this tax rate can be lower if there is a tax treaty. The corporate income tax system in Malta is similar to the US. If a company is incorporated in Malta, it has to pay 35% tax on all its income, no matter where it comes from. However, if a company is incorporated outside of Malta but is managed and controlled in Malta, it only has to pay tax on income that comes into Malta. This means it doesn’t have to pay tax on income from outside of Malta, as long as it’s not brought into Malta. Also, it can get benefits from Malta’s tax treaties with other countries, even if it doesn’t have to pay tax on its income in Malta. In Malta, companies pay a 35% income tax, but shareholders get some of it back when they receive dividends. If the company is in active business, shareholders get 6/7 of the tax back, resulting in a 5% tax rate. For passive income like interest and royalties, shareholders get 5/7 of the tax back, resulting in a 10% tax rate. Royalties from patents are completely exempt from tax, and if a company is managed in Malta, it’s completely exempt from tax on royalties from outside Malta. Malta also has no withholding tax on interest, dividends, or royalties for foreign people, and no rules for related-party transactions, debt-to-equity ratios, or controlled foreign companies. The U.S. and Malta have a tax treaty that reduces the tax rates on dividends, interest, and royalties. To benefit from the treaty, a company in Malta must be considered a resident of Malta and meet certain ownership and income requirements. There’s also a provision that allows residents of certain countries to own shares in a Maltese company without affecting the treaty benefits. This can create tax planning opportunities for businesses in both the U.S. and Malta. The U.S. has a tax treaty with Malta that allows American taxpayers to receive lower tax rates on dividends from Maltese companies. To qualify for this lower rate, the Maltese company must meet certain requirements outlined in the treaty. The IRS keeps a list of countries that meet these requirements, and any changes to the list will only apply to dividends paid after the update. Recently, a treaty was signed that allows foreign investors to get tax benefits by investing in the US through a company in Malta. For example, Spanish investors can form a company in the Cayman Islands but manage it from Malta, and still get the tax benefits from the treaty when receiving money from the US. This is a good option for them because it means they’ll pay less tax. In some cases, if the owners of a Maltese company are from a country outside of certain areas, they may not receive certain tax benefits. However, using a Maltese corporation can result in tax savings for U.S. taxpayers doing business abroad, compared to using an S corporation or partnership. This is because dividends from a Maltese corporation can be taxed at a lower rate when sent back to the United States. Malta has very low corporate income tax rates and a favorable tax treatment for intellectual property, making it a good place for US companies to invest in. The recent tax treaty with the US makes it even more attractive. It’s also important for companies to follow the rules for transferring money between countries, and to meet certain criteria to get tax refunds. The treaty specifies different tax rates for things like dividends and interest between the U.S. and Malta. The article also mentions a tax partner who is a lawyer and accountant.

Source: https://www.floridabar.org/the-florida-bar-journal/will-malta-become-the-new-ireland-in-international-tax-planning/